Business Law ch 3, 4,5 & 6.pptx

Chapter 3
Special contracts
3.1. Contract of sales

3.1.1. Definition of sales contract
a contract where by one of the parties, the
seller, undertakes to deliver a thing and
transfer its ownership to another party, the
buyer for a consideration in price expressed in
money which the buyer undertakes to pay
him(to the seller). art. 2266

Definitional elements
1. A sale contract is a contract
2. There must be at least two parties in sales
contract
3. The exchange should be made for a
consideration
4. The buyer assumes the obligation to pay the
agreed price for the thing which he/she has
bought.

3.1.2. Object of sales contract
The object of sales contract is a corporeal
chattel
Being corporeal.. Tangable existance
Being chattel… movable
There fore, incorporeal things which doesn’t
have material existence such as copy rights,
patent rights, industrial design rights,
commercial good will and other intellectual
property rights are not the subject matter of

3.1.3. Obligation of parties in sales
contract
3.1.3.1 Obligation of the seller
1. The first obligation of the seller is the
obligation to deliver the thing that he/she had
sold to the buyer
Delivery means simply the act of handing over
of a certain thing to a certain individual.

Types of delivery
1. Actual delivery- when the thing is physically
handed over by one person to another
person or to a carrier
2. Symbolic delivery- giving of the document
like ware house certificate
3. Constructive delivery- when there is no
change in the actual possession of the thing
delivered and the seller agrees to hold/ to
preserve the thing on behalf of the buyer

• Time and place of delivery

2. obligation to transfer the ownership title of
the thing to the buyer
by handing over simply the thing.
special corporeal chattels includes the
handing over of the document which attests
the title of ownership in addition to the
handing over the actual commodity

3. obligation to give warranty for the commodity
that he/she had sold
Caveat Emptor, i.e. let the buyer beware if on the
part of the seller, no fraud has been committed,
the buyer him/herself will be blamed if he/she
fails to investigate the defect of the thing
this theory was applicable in ancient times where
there were no that much complicated
commercial activities and where parties knew
each other

Caveat Venditor- The seller should give
warranty first, the object sold is in exact
conformity with the contract, and secondly,
the object is free from defects.
Express warranty a warranty stipulated in the
sales under which the seller assures the
quality, description or the performance of
goods

Implied warranty is the other type of
warranty imposed on the seller by the
operation of the law
1. warranty of title
2. warranty of merchantability
3. a warranty of fitness
4. or a warranty against infringement
(encumbrances)

3.1.3.2. Obligation of the buyer
1. obligation to pay the price
2. obligation of the buyer is to take delivery of
the thing

Common obligations of both the seller
and the buyer
1. Expenses
 Buyer- expenses incurred for the conclusion of the
contract, expenses of payment and expenses of transport
 Seller- expenses of delivery and custom duties
2. Obligation to preserve the thing:
 the seller must preserve the thing where the
buyer is late in taking delivery.
 The buyer has also the obligation to preserve
the thing when he/she intends to return the
thing to the seller on the ground of non-
conformity to the contract or defect in the thing.

3. Transfer of risk
The buyer bears the risk of loss or damage to
the thing if he/she is late in taking delivery
when the contract requires the seller to ship
the goods to the buyer by a carrier
1. if the contract doesn’t require that the seller
delivers the goods at a particular destination,
the risk of loss passes to the buyer when the
goods are delivered to the carrier

2. if the contract requires the seller to deliver
the thing at a particular destination, the risk
will pass to the buyer at the particular tender
of delivery or upon an offer to deliver

3.2. Contract of Agency
Agency is all about representation
It emanates from Law or contractual
agreement.

Reasons of representation
1. Incapacity
2. To represent legal person
3. Some activities requires specific knowledge
4. To represent a person who could not appear
personally due to geographical barrier

Definition
a contract where by a person, the agent
agrees with another person, the principal to
represent him and to perform on his behalf
one or several binding acts. Art.2199
Therefore, agency is contractual relationship
and according to this relationship, the agent is
duty bound to represent the principal

1. to act in the name of the principal and
2. for the exclusive interest of that particular
principal
 Agency contract has a special feature which
differentiate it from any other contracts that
it has a trilateral effect

1. Agency contract
2. Main contract

Sources of agency
1. contract- When the agent is appointed by a
written contract or simply by oral agreement
by the principal
2. Law- if the individual representative is
appointed by the mere operation of the law,
the authority is derived from the law
 Ex. tutors, guardians and succession
liquidators

Scope of agency
1. General agency: Agency expressed in general
terms shall only confer upon the agent authority
to perform acts of management
 acts done for the preservation and maintenance
of property, leases for terms not exceeding
three years, the collection of debts, the
investment of income and the discharge of
debts, the sale of crops, goods intended to be
sold or the sale of perishable commodities of
the principal.

• If for instance, the principal appoints the
agent using the words “in all my affairs” or
“...…is my agent” simply without specifying
the authority, it will be taken as a general
agency.

2. Special agency: a special agent is appointed to
do some specific acts or to transact certain
business affairs.
to perform acts other than acts of
management.
Special Agency includes to transfer (sale or
donation), to mortgage immovable properties,
to invest capital, to sign bill of exchange, to
appear before court

Duties and liabilities of the principal
1. contractual remuneration
2. Reimbursement
3. Indemnity- However, the losses or damages
must result directly from the execution of an
authority granted

Duties and liabilities of the agent
1. strictest good faith
1.1. The agent shall act in the exclusive interest
of the principal and may not, without the
knowledge of the principal, derive any
benefit from any transaction in to which
he/she enters in pursuance of his/her
authority
1.2. shall keep accounts

1.3. shall be also diligent
1.4. the agent is duty bound to carry out the agency
in person (him/herself) unless he/she is
authorized by the principal to appoint a
substitute.
The agent is personally liable to third parties if
he/she acts without authority, in other words, if
the agent exceeds the authority given to him/her
by the principal or if he acts beyond the scope or
ambit of his/her power

The agent will also be liable for torts, i.e. for
committing wrong acts even though he/she
acts within the scope of his/her authority.

Joint liabilities of the principal and the
agent
1. where the principal informed third parties of
the existence of the power of agency but
failed to inform these third parties of the
partial or total revocation of such power
2. where the principal failed to ask the agent to
return the document evidencing the power
of agency or failed to seek a judicial decision
to the effect that such document is revoked

3. Where the principal caused, in any other
manner, in particular by his/her statements,
behavior or failure to act, a third party to
believe that the person with whom he/she
was dealing was authorized to act on behalf of
the principal

The notion of unauthorized and
undisclosed agency
1. Unauthorized agency - occurs where a person
who has no authority to do so undertakes with
full knowledge of the facts to manage another
person’s affair without having been appointed as
an agent.
 duty to ratify
2. Undisclosed agency - occurs when the principal is
not known as the agent uses his/her own name
but acts for the exclusive interest of the principal

Termination of agency
1. Revocation by the principal.
2. Renunciation by the agent
3. Death, incapacity, declaration of absence or
bankruptcy of either of the parties

Commission and commercial agents
1. A Commission agent - is an agent who
undertakes to buy or to sell his/her principals
goods, securities or other fungible things in
his own name but on behalf of the principal
2. Commercial agent is an agent who represents
the principal permanently in a specified area
to deal and make agreements in the
principal’s name and for the interest of that
principal.

Chapter 4
Business and the law of Business
Organizations

Definition of business
incorporeal movable consisting of all movable
properties brought together and organized for
the purpose of carrying out any of the
commercial activities specified under art. 5 of the
commercial code
“Commercial Activity”, it means what a person is
engaged in professionally in an activity with the
intention to gain and a person who is engaged in
such an activity is called a trader (a business
man).

Elements of Business
A business consists of both corporeal and
incorporeal elements. These are:
1. Good will and incorporeal components:-
The good will results from the creation and
operation of a business and is a value which
may vary according to the probable or
possible relations between a trader and third
parties customer who may require from him
goods and services.”

Unfair competition - when traders mislead
customers or create confusion on the product
in the intention to affect the good will or the
product of others is deemed to be unfair
competition.
Remedies for acts of unfair competition

1. Civil remedies
• compensation for damages by the unfair
competitor to the victim of such act,
• injunction-to stop further unfair competition
made by the unfair competitor,
• publication-notice made to the public to
remove the effect of misleading by the
expense of the unfair competitor,

2. Criminal sanction
the current Criminal code of 2004 Art. 719,
punishable, upon complaint, with a fine of not
less than 1000 birr or simple imprisonment for
not less than 3 months.
3. Administrative remedies
The trade practice Proclamation No. 329/2003
trade practice investigation commission

• The commission may impose the following
administrative measures:
• suspend, correct or eliminate the practice in
question,
• suspend or cancel business license,
• take appropriate measure that enables the
victim’s competitive position to be reinstated,
• Impose penalty; i.e. fine 10% of the value of the
assets of the violator or 15% of the yearly total
gross sales of the violator. Fine may also be
imposed from 5000 to 50,000 birr.

Acts deemed to be acts of unfair
competition
1. Misleading commercial practice
2. False Discrediting Statements
3. Secret information;
4. :Restricting, impeding, debarring, or
weakening the competitive(efficient)
production and distribution of goods and
services;

8. Damping
9. Trading in humanitarian aid

Elements of Business
2. Trade Name
it is the name under which a person operates
his/her business and which clearly designates
the business
3. Trade-Mark
used to distinguish a product from other
products. It is a mark of authority and is
indicated on products/goods/packages in the
form of number, letter, work, drawing, etc

4. Service Mark: indicates the service provided by
an organization
5. Distinguishing Mark: is the name, designation
sign or emblem affixed on the premises where
the trade is carried on and which clearly
designates the business
6. Patents and copyrights: a business may consist
patent relating to registered inventions, trade
mark designs or models, copyrights or literary
and artistic elements and all these are legally
protected

Corporeal Elements
1. Accounts and Entries
–Asset accounts:
–Liability accounts:
–Equity accounts:
–Revenue or income accounts:
–Expense accounts:
–Contra accounts:

Traders and trading (commercial)
activities
Trader -a person who professionally and for gain
carries on any of the commercial activities
listed under art. 5 of the same code
1. operate an activity professionally
2. operate the activity for gain
3. The activity has to be one of the
enumerations of art. 5 of the commercial
code

Obligations of traders
1. the obligation to keep books and accounts,
2. the obligation to get registered, and
3. And the obligation to have business license.

Sale and mortgage of Business
1. Sale of a business
the contract of sale must be made in writing
1.1. Obligations of the seller
handing over the business with its constituent
parts
enabling the buyer to take over the goodwill
by handling to him/her all the necessary
documents and information

keeping book of account for two years
available to the buyer
handing over commercial correspondence
relating to the business to the buyer,
Refraining from doing any act of competition
likely to injure the buyer for five consecutive
years from the sale of the business to the
buyer

1.2. Obligation of the buyer
to pay the agreed price
ensuring the fact that a notice of sale is
published so that the creditor/s of the seller
may be aware of the fact that the business is
sold,
furnishing a legal mortgage

Refraining from paying the full price to the
seller until the period of time for making
applications to set aside expires or any such
application has been made, until the rights of
the creditors have been settled by agreement
or by the court and such creditors have been
paid.

4.3. Business organizations
• a business organization is defined as any
association arising out of a partnership
agreement
• partnership agreement- a contract where by two
or more persons who intend to join together and
to cooperate undertake to bring together
contributions for the purpose of carrying out
activities of an economic nature and of
participating in the profits and losses arising out
there of, if any.

• basic elements
1. A contract
2. Two or more persons
3. Contribution
4. To carryout activities of economic nature
5. Sharing profit and losses

Types of business organizations
1. Ordinary partnership/cancelled by the new cc/
2. Joint venture
3. General partnership
4. Limited partnership
5. Limited liability partnership/newly introduced/
6. Share company (S.C) and
7. Private limited company (PLC
8. One man company/ newly introduced/

with the exception of joint venture, all the
others have their own legal personality
The formation of any of the business
organization should be made in writing except
joint venture, and they should be registered
All of them with, of course the exception of
joint venture, have a memorandum and article
of association which are the constitutional
documents of the organization.

Dissolution
1. if the purpose for which the business
organization is achieved or cant be achieved
2. if the partners agree to dissolve it prior to the
expiry of the term,
3. if the term expires
4. by a court decision
 serious disagreement between the partners
 Failure to discharge ones duty
 Incapacity

General partnership
• This partnership consists of partners who are
personally, jointly, severally and fully liable as
between themselves and to the partnership
for the firms undertaking

Features
1. a memorandum of association
 business purpose of the firm
 the contribution of each partner
 the value of each contribution
 services required from persons who contribute
their skill
 the share of each partner in the profits and in
the losses
 the period of time for which the partnership has
been established

2. a firm name consisting of the names of at
least two of its partners and followed by the
words “General Partnership”.
3. A partner in a general partnership can’t assign
or transfer his/her share to an outsider with
out the full or majority vote of the other
partners
4. Partners in a general partnership have no
limited liability.

management
5. Management
 The partnership may be administered by one
or more managers who may or may not be
partners. If no manager has been appointed,
each partner is considered as a manager
In cases where all the partners are managers,
they may carry out only acts of management

Limited partnership
• it comprises two types of partners
1. general partners who are jointly, severally
and fully liable
2. limited partners who are only liable to the
extent of their contribution
 The limited partnership needs to have a firm
name consisting of the names of the general
partners and followed by the words “Limited
Partnership”

• In limited partnership, only the general
partners can be appointed as managers
• If a limited partner by chance happens to be a
manager, he/she will be considered as a
general partner and become jointly and
severally liable to the debt of the partnership.

Joint-venture
• Two types of partners
1. disclosed
2. Undisclosed partner

• A joint venture is not made known to third
parties
• A joint venture does not have legal personality

Limited liability partnership
 limited liability
 For professional associations

Share company
• a business organization whose capital is fixed
in advance and divided in to shares and whose
liabilities are met only by the assets of the
company
• the liability of the share holders is limited
• The name shall include the term “Share
Company”
• Free transfer of shares

Private Limited Company (PLC)
• members are liable only to the extent of their
contribution (share).
• It needs to have a firm name followed by the
words “Private Limited Company
• As opposed to share companies, the shares
issued by PLC are not freely transferable to
outsiders or third parties

Advantages of sole proprietorship
– easy to establish or form,
– direct initiation by the individual who wishes to
create the business,
– full and direct control over the business activity by
the owner,
– quick decision making,
– flexibility nature of the management and control
of the business,
– secrecy,
– Direct and simple relationship between the owner
and the employees of the business enterprise.

disadvantages of sole proprietorship
• limited capital,
• unlimited liability,
• lack of the know how to develop the business,
• lack of efficient management,
• Problem of sustenance.

Advantages of business organizations
or associations
– strong and reliable fund source,
– limited liability,
– free transferability of shares, at least in principle,
– possibility of the enhancement and development
of the business,
– capable and efficient management system,
– Stability and relatively sustenance nature of the
business.

Disadvantages of business
organizations
– lack of initiation,
– delay of decision,
– conflict of interest and disagreement between the
partners or shareholders,
– administrative expenses,
– Control by elites, i.e. by small group of individuals
of the business.

Chapter 5
Law of Insurance
• two approaches of definitions
1. Functional approach of definition:
functionally, insurance may be defined as a
cooperative device to spread the loss caused
by a particular risk over a number of persons
who are exposed to it and who agree to insure
themselves against the risk.

2. Contractual approach of definition: according
to this approach insurance is a contract where
by one party, the insurer agrees to pay a
specified sum of money on the happening of a
particular event to another party called the
insured or a third party beneficiary designated
by the original insured person, who in turn
agrees to pay a sum in the form of a premium
for its consideration

Obligations of parties in contract of
insurance
 Rights and obligations of the insurer
1. obligation to pay the insurance benefit to the
insured person
2. obligation to pay the amount specified in the
insurance policy

• Obligations of the insured (beneficiary)
1. the obligation to pay premium
2. obligation to disclose or provide all the
necessary and correct material facts or
information
3. obligation to notify to the insurer that the
risk is occurred

Elements of an insurance policy
• the place and date of the contract,
• the names and addresses of the parties,
• the item (property), liability or person insured,
• the nature of the risk insured,
• the amount of the guarantee,
• the amount of the premium, and
• The term for which the contract is made.

Classification of insurance
1. Marine insurance
2. Property Insurance
3. Life and accident insurance
4. Liability insurance

Fundamental principles of insurance
contract
1. the principle of utmost good faith
2. the principle of indemnity
3. the principle of insurable interest
4. the principle of Causa Proxima/cause- effect/
5. the principle of commencement of the risk
6. the principle of mitigation of loss
7. the principle or doctrine of subrogation
8. the principle or doctrine of contribution

Chapter 6
The law of Negotiable Instruments
• any document incorporating a right to an
entitlement in such manner that it be not
possible to enforce or transfer the right
separately from the document/instrument.

1. Document
2. The document must embody a right to an
entitlement
3. The rights/obligations contained in the
document/instrument are
negotiable/transferable that the document
can be transferred like any other property

Types of negotiable instruments
1. Commercial instruments
 bill of exchange
 promissory note
 cheques
 travelers cheque
 ware house goods deposit certificate
2. Transferable securities
 shares and debentures
 life insurance policies

3. Documents of title to goods
• bill of loading
• air way bill
• Railway bill and others.

The obligation of the debtor (the
drawer) in negotiable instruments
• The drawer is required to pay the amount of
money stated in the document, be it a cheque or
a bill of exchange or a promissory note when
1. The instrument/document is presented to him
2. When the possessor/holder satisfies him/her
(the drawer) that he/she is a true owner of the
instrument.
3. The document is presented to the debtor (the
drawer) at maturity

Defenses available to the debtor (the
drawer)
1. Defenses based on personal relations
between him/herself and the payee
2. Defenses of form and those based on the text
of the instrument
3. Defense based on the falsification of the
signature of the drawer
4. Defense based on lack of representation
5. Defense based on lack of capacity

Holder in-due-course (Good faith
acquirer)
• if the a person acquires the
instrument/document in good faith, he/she
will be the true owner of the instrument even
though he/she took it from a thief
• he/she knew nothing or shouldn’t have known
any thing about the defect or a wrong doing
concerning the document

Negotiation or form of transfer of a
negotiable instrument
1. to bearer instrument
2. to a specified name instrument or to order.

The concept and form of endorsement
1. It should be written on the back side of the
instrument and signed by the endorser
2. It should not be conditional
3. It should not be partial that the endorser
should transfer all the rights in the
instrument

Business Law ch 3, 4,5 & 6.pptx

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